The new ombudsman for the banking industry, retired advocate Charl Cilliers, is going to be a busy man I predict. In this age of greater transparency and an increasingly sophisticated public, I think that more and more cases of unethical and even downright immoral practices by bank brokers will land on his desk.
Two recent cases two of hundreds that I have come across in recent years illustrate my point.
An independent investment adviser approached me with the following story: she had a client who came to her for an assessment of his investment portfolio which consisted of R1,3 million cash on a 32-day notice deposit at Standard Bank. After a lengthy analysis plus an eight-page report on various issues like wills, trusts and an investment portfolio, the adviser recommended several investments. The one investment was the Millennium matured endowment which had a deadline attached to it as the current tranche expired on August 22.
The client accepted her recommendation and wanted to go ahead with the investment. However, when he went to see his bank manager about releasing the funds the manager said he was not prepared to release the funds within the 32-day notice period unless the investment into Millennium was done through the branch's Stanfin financial adviser.
Not wanting to lose out on investing in Millennium (which I also recommend as a good investment), the client agreed and invested an amount of R600 000 in Millennium through the bank's adviser. The brokerage fee to the happy bank and broker was R12 000 plus VAT.
The salt in the wound in this distasteful issue was that the bank got the client to sign an indemnity, in which the client acknowledged that he approached the bank to make the investment and that the bank did not solicit him or approach him in any way whatsoever to make the investment!
Solicit, my foot. This was nothing more than blackmail. "Do it through our 'financial adviser' and pay us R12 000 for the pleasure or you lose out on the investment," was what the bank was saying.
Secondly, the client also accepted full responsibility for the investment decision and cannot in any way hold the bank responsible. If this is not the best business in the world I don't know what is. The poor client is held over a barrel, the original investment adviser who did all the work was cheated while the client has no recourse to the bank if the investment goes sour. I wonder will the original adviser still be held responsible for this?
The branch of Standard Bank concerned was that in Isando, Gauteng. I have the name of the financial adviser and the client. I also have a copy of the document he signed with Standard Bank. I have urged the financial adviser to forward this issue to the new ombudsman and it will be interesting to see what the response will be.
This is but one of many instances I come across, almost daily, demonstrating the "wonderfully" ethical way banks do business with their clients. I cannot tell you how many people take out life assurance and 20-year endowments on their bonds under the false impression that they have to do it, or else they will lose their bonds.
Only last week a relative was approached by a broker from his bank Absa, who saw that he had recently paid off his bond. The broker advised him to take out another bond on his house and invest the money into an offshore portfolio!
Fortunately, my relative had the good sense to ask my advice. When I pointed out that bond rates are still close to 20 per cent, stock markets are over-heated and the cost of investments is high, he wisely decided not to go ahead with the investment. How many other potential investors have been taken in by this approach?
It appears as if many financial advisers have not yet read the judge's verdict in the Absa vs Durr court case.
What the public needs to know is what the relationship between the bank and their brokerage house is, what percentage of the commission goes to the bank and to the brokerage, and more importantly, what ongoing investment advice will be forthcoming from the institution, and even more importantly, does the bank stand by the advice of its investment brokers?.
The banks are trading on their names and the trust the public has in them. The investing public needs to be assured that they are getting best advice and that they can rely on the integrity of the advisers.
But that seems to be one word notably absent in the business world today.